Romania looks to capitalize on huge IT workforce with startup success

Bucharest

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You won’t hear many of Bucharest’s entrepreneurs extolling the virtues of communism. But it’s Romania’s 42 years as a socialist republic that have – at least in part – helped it become one of eastern Europe’s strongest tech markets. Romania has the highest number of IT professionals per capita on the continent. And with a raft of recent tax and stock exchange projects under way, it is poised to add to a growing portfolio of tech successes.

Some countries from the former Eastern Bloc have found IT fame on the fortunes of their post-Soviet days alone. Not so Romania. The 20 million-strong country, which sits between the Balkan Peninsula and the Black Sea, had a special place in COMECON, the Soviet Union’s stratified economic plan.

“Pre-89 there was zero entrepreneurship, zero private enterprise,” says Radu Georgescu, founding partner at investment firm GECAD. “Everything was owned by the state. There was no sales knowledge, no marketing knowledge. But the good part was that before ’89 Romania was the country in the eastern bloc that was supposed to create the IT computers. Every country was supposed to be a specialist in something, and Romania’s was IT. That gave us a head start.”

Technical universities, such as Bucharest’s Polytechnic and Babes Bolyai University, in the Transylvanian capital of Cluj-Napoca, have been turning out thousands of highly-skilled IT workers for decades. Each year another 9,000-plus graduates join a sector that some experts believe to have expanded beyond 100,000. Some claim the figure is closer to 120,000. Romania’s Association of Software and IT Services (ANIS) is hoping that the country can have 300,000 such professionals by 2020. Whatever the exact number is now, it’s helping Romania get a good rep in the Valley.

“Romania has always been a good reservoir for tech people,” says Dragos Roua, an entrepreneur, author and founder of Bucharesti co-working space Open Connect. “Romanians have for years been working at the likes of Google, Facebook, Microsoft.”

“We do have the best engineers in the world: Romania is the place where you want to have your tech team,” adds Georgescu. The country’s education system is being honed further still to aid specialist roles within the field, leading some to believe Romania could be key in reducing the European Commission’s estimated 900,000-strong shortfall in IT workers across the region.

With the technical skills have, slowly, come entrepreneurship and exits that would be the envy of many in California. HootSuite was so enamored by social analytics player UberVu that it acquired the Bucharest-resourced firm 12 months ago. Cluj’s LiveRail, an ad sales platform, was bought by Facebook last August for between $400 million and $500 million. Avangate, a Bucharest-based eCommerce outfit, was bought by San Francisco’s Francisco Partners in late 2013. It increased its technical team by 50% in 2014 and hopes to repeat the figure this year.

150 of Avangate’s 200 employees are based in Romania, according to VP of sales EMEA, Laurentiu Ghenciu. Romanian-based service clients have seen investments grow at 10% beyond the global rate this year, “which shows the strength of the local market.”

It was at 2012’s How To Web conference in Bucharest, meanwhile, when 123ContactForm met Adrian Gheara, an angel investor and co-founder of Neobyte Solutions. Florin Cornianu, the startup’s founder, was delighted to find a cash injection, which can still be hard in Romania. But the scene is opening up thanks to conferences and co-working spaces, like Timisoara Startup Hub, in the far west of the country. It is Romania’s politics which still hold it back, he says.

“Although things started to change, we still lack a clear set of laws aiming to make a startup life easier,” he says. “Because of that it’s difficult for a startup to raise money.” Georgescu agrees, pointing to the business inertia of the communist era, and the money grabs that happened upon the regime’s downfall. “What can be improved are management and business skills,” he says. “As a community we are making many efforts to change this.”

Current President Klaus Iohannis, an ethnic German who came to power in December, has made several pledges about reducing corruption in Romania. However the country places 69th of 175 in Transparency International’s Corruption Perceptions Index – the lowest in the European Union – and investment has been strangled as a result.

“We don’t have enough capital to make the wheels go round,” says Roua. “But the direction is to go into a place where more capital will come in Romania, because the costs and risks are not as high. And it’s not just the labour but the opportunity cost. If you start here you will go faster.”

Val Muresan, of San Mateo-and-Timisoara’s Movidius, a vision processing firm which has raised almost $47 million across four funding rounds, says that finding support in Silicon Valley can be tough for Romanians: “In theory there should be no limit, but if you call an investor and say you’re from Timisoara they say, ‘Where?’”

But recently the government has made some changes that are having big results. Since 2001, in fact, Romania has tax-exempted IT workers depending on the contribution of their employer, from the normal rate of 16%. Outside IT, Romania is one of Europe’s poorest nations, with wages of around $600 per month. In the industry that can climb to anywhere from $2,400 to $4,800. That’s higher than many of its neighbors.This has allowed startups to flourish and grow quickly, though some estimate that, due to the small print of the rule, it has only been implemented in a fifth of all cases.

It is a current project which is exciting tech leaders more. AeRO is a platform of the Bucharest Stock Exchange (BVB), which will launch on February 25 this year. It allows companies with a minimum value of €250,000 ($295,000) “the possibility to finance through the capital market via a streamlined process for admission to trading” via intermediaries called Authorized Advisors.

As part of AeRO companies must float 10% of the business, or have at least 30 shareholders. They will also have to issue informal documentation on financials. In return AeRO will give access to capital and add transparency to the market. BVB CEO Ludwik Sobolewski is hoping the project can emulate his previous success at the helm of Warsaw’s NewConnect, which since 2007 has amassed 430 listed companies and a total market capitalization of €2.3 billion ($2.7 billion).

“Having this new thing with real companies in real life, and people being able to change, will change the mentality. People can know what stocks are and what risk profiles are. That’s a really big thing,” says Georgescu.

EU membership, too, is having an effect. “Being in the EU makes it easier for other companies to open offices here, and more are coming,” says Alexandru Chis of Tintag, in Cluj-Napoca. “They are trying to attract the skilled workforce. So step by step the wage gap is getting smaller.” This will help to reduce the image of Romania as a home of cheap and cheerful work. “We have to overcome this and focus on the positives that it brings locally,” adds Chis.

Bogdan Iordache, a serial entrepreneur and co-founder of How to Web, Tech Hub Bucharest, Tech Angels and Conectoo, agrees. “A couple of years ago, the Romanian tech industry was mainly focused on outsourcing activities,” he says. “A vast majority is still doing outsourcing, but we see a fast growing interest in products. Today we have more startups than ever and we see lots of examples of experienced professionals moving to the startup world and shifting their focus from outsourcing to product.”

A highly-skilled, highly-populated workforce, friendly tax regimes and the ability to float early. Romania has plenty in place to become a major player – not just in the technical skills for which it has long been known, but as a vibrant, successful startup hub. And, according to Georgescu, it’s only a matter of time until the country’s imperfections are ironed out.

“It’s been a long process and it’s still a long way to go,” he says. “You cannot change the culture of people in 20 years. It sounds a long time but it’s not – it’s under a generation. And for a country that was completely unused to the realities of the business world, it’s tough. We are going to make a lot of mistakes, grow up and make different ones!”

 

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    A highly-skilled, highly-populated workforce, friendly tax regimes and the ability to float early. Romania has plenty in place to become a major player – not just in the technical skills for which it has long been known, but as a vibrant, successful startup hub. And, according to Georgescu, it’s only a matter of time until the country’s imperfections are ironed out.

    “It’s been a long process and it’s still a long way to go,” he says. “You cannot change the culture of people in 20 years. It sounds a long time but it’s not – it’s under a generation. And for a country that was completely unused to the realities of the business world, it’s tough. We are going to make a lot of mistakes, grow up and make different ones!”

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